The Fed won’t hike 5, 6 or 7 times

Here is something to put in your diary and check at the end of 2022.

https://www.bloomberg.com/news/articles/2022-01-29/goldman-sachs-predicts-fed-will-raise-rates-five-times-this-year?sref=qLOW1ygh

Goldman Sachs joins the others below, where they think the Fed will raise rates 5 times this year.

“Bank of America Corp. now predicts seven rate hikes in 2022 and BNP Paribas SA forecasts six, while JPMorgan Chase & Co. and Deutsche Bank AG see five.”

Personally, I think their views are ridiculous and far-fetched.

My view is quite different.

I think the Fed raises rates twice this year and then corrects their actions with a rate cut.

My playbook suggests the Fed will hike and react to what the U.S. 2 year treasury note has done, which paints them as being behind the curve. They may be trying to temper inflation, which is mainly being driven by high commodity prices, disrupted supply chains and oddly, a tight labour market.

Politically, they will will feel pressure to do so, if at least to put a lid on U.S. gasoline prices.

But they won’t put rates up too much, for finally, inflation has reached the target rate that they have been wishing it would reach for many years.

As the government’s teat is removed from many and workforce participation increases (possibly because they lose money in their crypto portfolios), supply chains are rectified and commodity prices seriously mean revert, we should see inflation peaking (about now) and a lower GDP print for the March quarter, all without any meaningful rate hikes.

Excessive hikes will hurt GDP growth.

hint: mid term elections are coming in November 2022.

This may not sink in until after the May 4th Fed meeting.

More on the positioning of the investment playbook later.

January 31, 2022

by Rob Zdravevski

rob@karriasset.com.au

What the 10’s-2’s spread may tell us

My story about watching interest rates spreads and how the S&P 500 equity index may act.

June 22, 2021
by Rob Zdravevski
rob@karriasset.com.au

The FED can’t manufacture inflation

Let’s get one thing straight….
The Federal Reserve is hopeless at trying to produce inflation.

It’s had bandied about some fantastical 2% inflation target for years. M2 Money Supply has risen by $6 trillion in 5 years, with half of that occurring in the past 3 months (and more to come) and still isn’t any sign of inflation.

It’s advisable to read up on Debt Deflation. That seems a more probable outcome.

Having said that, inflation could well rear its head as a result of something such an oil shock. Incidentally, the energy complex has a significant weighting when calculating inflation.

I don’t say this because I’ve recently re-read the events of 1970’s but there is some merit of that occurring within the current landscape.

But the Federal Reserve won’t be the ones who “create” inflation.

June 17, 2020
by Rob Zdravevski

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